Putnam
Variable Trust
12 | 31 | 15
Annual report
Putnam VT
Equity Income Fund
Message from the Trustees
Dear Shareholder:
As 2016 gets under way, a number of factors in today’s markets stand out. Last year, the U.S. Federal
Reserve announced a liftoff in short-term interest rates. The first increase took place in December,
but the Fed has said that future hikes will likely occur at a gradual pace. Meanwhile, central banks in
Europe and Japan continue to run accommodative monetary policies. China’s economy, the world’s
second largest, is slowing, with global ramifications. In addition, the price of a barrel of oil is testing
multi-year lows.
This combination of factors tempered the performance of stocks in 2015 after a string of solid annual
gains over the previous three years. Should the economy continue to grow, stocks could rise, but it
would be prudent to be prepared for bouts of volatility in the months ahead.
Managing downside risk while pursuing returns in today’s investing environment poses a challenge.
Putnam’s experienced portfolio managers are constantly seeking innovative ways to maneuver
in today’s markets, relying on a proprietary global research framework to guide their investment
­decisions. The interview on the following pages provides an overview of your fund’s performance for
the reporting period ended December 31, 2015, as well as an outlook for the coming months.
We also encourage you to consult your financial advisor to ensure that your portfolio is in line with
your investment goals, time horizon, and risk tolerance.
As always, thank you for investing with Putnam.
Respectfully yours,
Robert L. Reynolds
President and Chief Executive Officer
Putnam Investments
Jameson A. Baxter
Chair, Board of Trustees
February 10, 2016
Performance summary (as of 12/31/15)
Investment objective
Portfolio composition
Capital growth and current income
3.4% Telecommunication services
4.7% Utilities
4.8% Materials
Net asset value December 31, 2015
Class IA: $21.73
Class IB: $21.55
8.3% Energy
8.6% Consumer
staples
Total return at net asset value
(as of 12/31/15)*
1 year
Class IA shares†
Class IB shares†
–2.79%
Russell 1000
Value Index
–3.04%
–3.83%
5 years
77.96
75.88
70.58
Annualized
12.22
11.95
11.27
118.43
113.30
81.74
10 years
Annualized
Life
Annualized
8.13
7.87
6.16
214.77
205.23
184.73
9.48
9.21
8.61
For a portion of the periods, the fund had expense limitations, without which
returns would have been lower.
9.0% Consumer
discretionary
11.2% Industrials
2.7% Cash and net
other assets
23.0% Financials
12.2% Information
technology
12.1% Health care
Allocations are shown as a percentage of the fund’s net assets. Cash and
net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio.
Equity
Income
Fund
Summary 23N
information
may differ
from the
portfolio schedule included
in the financial statements due to the inclusion of derivative securities,
any interest accruals, the exclusion of as-of trades, if any, and the use of
different classifications of securities for presentation purposes. Holdings
and allocations may vary over time.
*Recent performance may have benefited from one or more legal settlements.
† Class inception date: May 1, 2003.
Cumulative total returns of a $10,000
investment in class IA and class IB shares
at net asset value — since 12/31/05
$30,000
$25,000
Putnam VT Equity Income Fund class IA shares
Putnam VT Equity Income Fund class IB shares
Russell 1000 Value Index
$21,843
$21,330
$20,000
$18,174
$15,000
$10,000
$5,000
12/31/05 2006 2007 2008 2009 2010
2011
2012 2013 2014 12/31/15
The Russell 1000 Value Index is an unmanaged index of those companies in the
large-cap Russell 1000 Index chosen for their value orientation.
Data represent past performance. Past performance does not guarantee
future results. More recent returns may be less or more than those shown.
Investment return and principal value will fluctuate, and you may have a
gain or a loss when you sell your shares. Performance information does not
reflect any deduction for taxes a shareholder may owe on fund distributions
or on the redemption of fund shares. All total return figures are at net asset
value and exclude contract charges and expenses, which are added to the
variable annuity contracts to determine total return at unit value. Had these
charges and expenses been reflected, performance would have been lower.
For more recent performance, contact your variable annuity provider who
can provide you with performance that reflects the charges and expenses at
your contract level.
Putnam VT Equity Income Fund 1
Report from your fund’s manager
Darren, could you tell us about the investing
environment for the 12-month reporting period ended
December 31, 2015?
U.S. stocks delivered modest returns, and market conditions
changed considerably over the course of the period. When the
fiscal year began in January 2015, the market was choppy, but
stocks, as measured by the S&P 500 Index, managed to post
gains overall. In March, the bull market for U.S. stocks marked its
sixth anniversary, and at the close of June, stocks posted their
tenth consecutive quarterly gain.
In my view, the biggest surprise in the first half of 2015 was the lack
of significant market volatility. Stock performance was relatively flat
and markets were calm, despite several issues, including collapsing
oil prices, a strengthening U.S. dollar, and a weaker outlook for earnings growth for U.S. businesses. The calm came to a sudden halt
in August, when stocks plunged, and for the first time since 2011,
major U.S. stock indexes experienced a correction, defined as a
decline of 10% or more after an upward trend. While stocks recovered from their August lows, 2015 was the weakest year for stock
market returns since the global financial crisis in 2008.
What are some examples of stocks or strategies that
contributed to the portfolio’s performance during the
reporting period?
The top contributor to performance for the period was the portfolio’s investment in Northrop Grumman, an aerospace and defense
company. In our view, this was a very well-managed company
that focuses on cash flow, profitability, and returning cash to
shareholders. Northrop Grumman has delivered strong earnings
growth and was recently awarded a multi-billion-dollar Pentagon
contract — a pleasant surprise for investors that boosted the
stock price considerably.
The portfolio’s investment in Alphabet, formerly known as Google,
was also a notable contributor to performance for the period. In
October, the company reported solid earnings and revenue growth
that exceeded expectations. In addition, investors responded positively to the company’s reorganization, which was announced in
August 2015. Under the new structure, Google, the search engine
portion of the business, will be managed separately from the
company’s other businesses.
What were some stocks that detracted from
performance during the reporting period?
Across world financial markets throughout the period, a dominant
theme was the sharp decline and continued volatility in oil prices.
This was clearly reflected in the performance of Royal Dutch Shell
and Marathon Oil, large integrated energy companies whose profitability is closely tied to the price of oil. In addition to selling off
assets and cutting capital expenditures, Marathon Oil reduced its
dividend — sooner and by a larger amount than investors anticipated. This caused a significant price decline in the stock, which
was the top detractor from fund performance for the period.
Outside of the energy sector, Genworth Financial was a
disappointment. The stock of this insurance and investment
2 Putnam VT Equity Income Fund
services company declined in large part because of write-downs
in Genworth’s long-term-care business. The problems have
been mostly from unprofitable older long-term-care policies.
We believe Genworth is taking positive steps, such as raising
premiums and working to make its newer long-term-care
products more profitable.
What are some of the biggest risks for U.S. equities as
we head into 2016?
Equity markets around the world are faced with an array of
macroeconomic risks. Investor worries continue to escalate over
slowing growth in China, which is a carefully watched market and
a significant global consumer. At the same time, oil price volatility
appears to remain a critical challenge for financial markets and
businesses. After plunging rapidly in 2014, oil prices remained
volatile in 2015, declining to a six-year low last summer, and have
continued to decline in early 2016.
As a value investor and portfolio manager, however, I am more
focused on stock-specific risks such as valuation and earnings. I believe equities are generally expensive today, trading
at historically high valuations. This makes it challenging to find
opportunities, particularly with a value-style investing approach.
Another risk facing equities relates to earnings growth. Profits for
S&P 500 companies declined year-over-year in the second and
third quarters of 2015. This lack of earnings growth, combined
with relatively high valuations, are the biggest challenges for
equity investors today, in my view.
The views expressed in this report are exclusively those of Putnam
Management and are subject to change. They are not meant as investment advice. Please note that the holdings discussed in this report may
not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy
and may vary in the future.
Consider these risks before investing: Value stocks may fail to
rebound, and the market may not favor value-style investing.
Income provided by the fund may be reduced by changes in the
dividend policies of, and the capital resources available at, the
companies in which the fund invests. Stock prices may fall or fail
to rise over time for several reasons, including general financial
market conditions and factors related to a specific company or
industry. You can lose money by investing in the fund.
Your fund’s managers
Portfolio Manager Darren A. Jaroch, CFA, joined
Putnam in 1999 and has been in the investment
industry since 1996.
Assistant Portfolio Manager Walter D. Scully, CPA,
has been in the investment industry since he joined
Putnam in 1996.
Your fund’s managers may also manage other accounts advised by Putnam
Management or an affiliate, including retail mutual fund counterparts to the
funds in Putnam Variable Trust.
Understanding your fund’s expenses
As an investor in a variable annuity product that invests in a registered
investment company, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using
the following information, you can estimate how these expenses
affect your investment and compare them with the expenses of
other funds. You may also pay one-time transaction expenses,
which are not shown in this section and would result in higher total
expenses. Charges and expenses at the insurance company separate account level are not reflected. For more information, see your
fund’s prospectus or talk to your financial representative.
Expense ratios
Review your fund’s expenses
The two left-hand columns of the Expenses per $1,000 table show
the expenses you would have paid on a $1,000 investment in your
fund from 7/1/15 to 12/31/15. They also show how much a $1,000
investment would be worth at the close of the period, assuming
actual returns and expenses. To estimate the ongoing expenses
you paid over the period, divide your account value by $1,000,
then multiply the result by the number in the first line for the class
of shares you own.
*Restated to reflect current fees.
Compare your fund’s expenses with those
of other funds
The two right-hand columns of the Expenses per $1,000 table
show your fund’s expenses based on a $1,000 investment,
assuming a hypothetical 5% annualized return. You can use this
information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those
of other funds. All shareholder reports of mutual funds and funds
serving as variable annuity vehicles will provide this information to
help you make this comparison. Please note that you cannot use
this information to estimate your actual ending account balance
and expenses paid during the period.
Class IA
Class IB
Total annual operating expenses for the fiscal year
ended 12/31/14*
0.58%
0.83%
Annualized expense ratio for the six-month period
ended 12/31/15†
0.58%
0.83%
Fiscal-year
expense information in this table is taken from the most recent
prospectus, is subject to change, and may differ from that shown for the
annualized expense ratio and in the financial highlights of this report.
Expenses are shown as a percentage of average net assets.
†For the fund’s most recent fiscal half year; may differ from expense ratios
based on one-year data in the financial highlights.
Expenses per $1,000
Expenses and value for a
$1,000 investment, assuming
actual returns for the 6 months
ended 12/31/15
Expenses paid
per $1,000*†
Ending value
(after expenses)
Expenses and value for a
$1,000 investment, assuming a
hypothetical 5% annualized return
for the 6 months ended 12/31/15
Class IA
Class IB
Class IA
Class IB
$2.86
$4.09
$2.96
$4.23
$956.80
$955.70
$1,022.28
$1,021.02
*Expenses for each share class are calculated using the fund’s annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of average net assets for the six months ended December 31, 2015.
The expense ratio may differ for each share class.
†Expenses based on actual returns are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the result
by the number of days in the period; and then dividing that result by the
number of days in the year. Expenses based on a hypothetical 5% return are
calculated by multiplying the expense ratio by the average account value for
the six-month period; then multiplying the result by the number of days in
the six-month period; and then dividing that result by the number of days in
the year.
Putnam VT Equity Income Fund 3
Report of Independent Registered Public Accounting Firm
To the Trustees of Putnam Variable Trust and Shareholders of
Putnam VT Equity Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio, and the related statements of operations and of changes in
net assets and the financial highlights present fairly, in all material respects,
the financial position of Putnam VT Equity Income Fund (the “fund”) at
December 31, 2015, and the results of its operations, the changes in its net assets
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
“financial statements”) are the responsibility of the fund’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 2015
by correspondence with the custodian, brokers, and transfer agent, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2016
4 Putnam VT Equity Income Fund
The fund’s portfolio 12/31/15
COMMON STOCKS (95.4%)*
COMMON STOCKS (95.4%)* cont.
Shares
Value
Aerospace and defense (6.5%)
General Dynamics Corp.
28,270$3,883,167
Honeywell International, Inc.
49,8505,162,965
L-3 Communications Holdings, Inc.
48,2105,761,577
Northrop Grumman Corp.
72,34013,658,513
United Technologies Corp.
21,0202,019,391
30,485,613
Airlines (1.0%)
American Airlines Group, Inc.
105,6004,472,160
4,472,160
Auto components (1.1%)
Delphi Automotive PLC (United Kingdom)
62,2005,332,406
ðÿ5,332,406
Automobiles (0.8%)
General Motors Co.
107,0603,641,111
3,641,111
Banks (9.0%)
Bank of America Corp.
408,8906,881,619
Citigroup, Inc.
188,8759,774,281
JPMorgan Chase & Co.
163,19010,775,436
KeyCorp
174,9702,307,854
Regions Financial Corp.
346,2203,323,712
Wells Fargo & Co.
174,6429,493,539
42,556,441
Beverages (1.7%)
Coca-Cola Enterprises, Inc.
79,4103,910,148
Dr. Pepper Snapple Group, Inc.
44,9104,185,612
8,095,760
Capital markets (4.3%)
Charles Schwab Corp. (The)
175,5605,781,191
Goldman Sachs Group, Inc. (The)
17,1203,085,538
Invesco, Ltd.
59,1201,979,338
KKR & Co. LP
211,2403,293,232
State Street Corp.
90,5806,010,889
20,150,188
Chemicals (2.6%)
Air Products & Chemicals, Inc.
30,2103,930,623
CF Industries Holdings, Inc.
30,7801,256,132
Dow Chemical Co. (The)
70,7503,642,210
E.I. du Pont de Nemours & Co.
49,4703,294,702
12,123,667
Commercial services and supplies (0.7%)
Tyco International PLC
105,1253,352,436
3,352,436
Communications equipment (1.3%)
Cisco Systems, Inc.
134,2203,644,744
QUALCOMM, Inc.
46,6102,329,801
5,974,545
Consumer finance (—%)
Oportun Financial Corp. (acquired 6/23/15,
cost $223,215) (Private) † ∆∆ F
78,321200,893
200,893
Containers and packaging (1.7%)
Packaging Corp. of America
44,3902,798,790
Sealed Air Corp. S
67,4803,009,608
WestRock Co.
49,2182,245,325
8,053,723
Diversified financial services (0.5%)
CME Group, Inc.
23,9102,166,246
2,166,246
SharesValue
Diversified telecommunication services (2.6%)
AT&T, Inc.
122,030$4,199,052
CenturyLink, Inc.
57,8001,454,248
Verizon Communications, Inc.
138,7506,413,025
12,066,325
Electric utilities (3.2%)
American Electric Power Co., Inc.
44,3002,581,361
Edison International
51,7403,063,525
Exelon Corp.
132,4203,677,303
NextEra Energy, Inc.
27,1702,822,691
PPL Corp.
87,7282,994,157
15,139,037
Energy equipment and services (1.1%)
Baker Hughes, Inc.
61,4302,834,995
Halliburton Co.
29,9501,019,498
National Oilwell Varco, Inc. S
37,4101,252,861
5,107,354
Food and staples retail (1.5%)
CVS Health Corp.
70,1906,862,476
6,862,476
Food products (1.2%)
JM Smucker Co. (The)
29,7353,667,515
Kraft Heinz Co. (The)
26,2901,912,860
5,580,375
Health-care equipment and supplies (1.7%)
Boston Scientific Corp. †
252,5404,656,838
Medtronic PLC
46,1763,551,858
8,208,696
Health-care providers and services (1.6%)
Cigna Corp.
51,3107,508,192
7,508,192
Hotels, restaurants, and leisure (0.8%)
Hilton Worldwide Holdings, Inc.
171,4373,668,752
3,668,752
Household durables (0.4%)
PulteGroup, Inc.
93,5501,667,061
1,667,061
Household products (0.6%)
Kimberly-Clark Corp.
23,2602,960,998
2,960,998
Independent power and renewable electricity producers (0.8%)
Calpine Corp. †
162,3482,349,176
NRG Energy, Inc.
125,8301,481,019
3,830,195
Industrial conglomerates (1.6%)
Danaher Corp.
42,0803,908,390
General Electric Co.
123,7603,855,124
7,763,514
Insurance (4.3%)
American International Group, Inc.
100,7406,242,858
Assured Guaranty, Ltd.
131,2403,468,673
Genworth Financial, Inc. Class A †
307,6801,147,646
Hartford Financial Services Group, Inc. (The)
80,2003,485,492
MetLife, Inc.
92,1204,441,105
Willis Group Holdings PLC
31,6601,537,726
20,323,500
Internet software and services (1.5%)
Alphabet, Inc. Class C †
9,1956,977,902
6,977,902
IT Services (1.2%)
Computer Sciences Corp. S
54,0201,765,374
CSRA, Inc. †
54,0201,620,600
Fidelity National Information Services, Inc.
38,7702,349,462
5,735,436
Putnam VT Equity Income Fund 5
COMMON STOCKS (95.4%)* cont.
SharesValue
Life sciences tools and services (0.7%)
Agilent Technologies, Inc.
83,790$3,503,260
3,503,260
Machinery (0.4%)
Oshkosh Corp.
53,0202,069,901
2,069,901
Media (4.8%)
CBS Corp. Class B (non-voting shares)
54,3302,560,573
Comcast Corp. Class A
148,4808,378,726
Liberty Global PLC Ser. C (United Kingdom) †
66,5102,711,613
Time Warner Cable, Inc.
23,2904,322,391
Time Warner, Inc.
68,7804,448,003
22,421,306
Multi-utilities (0.7%)
Ameren Corp.
19,880859,412
PG&E Corp.
46,8402,491,420
3,350,832
Oil, gas, and consumable fuels (7.2%)
Anadarko Petroleum Corp.
68,7703,340,847
EOG Resources, Inc.
33,0702,341,025
Exxon Mobil Corp.
124,2009,681,390
Marathon Oil Corp.
331,3704,171,948
QEP Resources, Inc.
84,6601,134,444
Royal Dutch Shell PLC ADR Class A (United Kingdom) 117,6035,385,041
Total SA (France)
65,1402,901,065
Total SA ADR (France)
10450
Valero Energy Corp.
69,4204,908,688
33,864,898
Personal products (2.3%)
Coty, Inc. Class A
279,6107,166,404
Edgewell Personal Care Co.
46,1003,612,857
10,779,261
Pharmaceuticals (7.8%)
AstraZeneca PLC ADR (United Kingdom)
172,9205,870,634
Eli Lilly & Co.
155,03013,062,828
Johnson & Johnson
92,7409,526,253
Merck & Co., Inc.
84,8004,479,136
Pfizer, Inc.
116,8893,773,177
36,712,028
Real estate investment trusts (REITs) (3.4%)
American Tower Corp. R
22,1402,146,473
Boston Properties, Inc. R S
29,6403,780,286
Equity Lifestyle Properties, Inc. R
56,7603,784,189
Federal Realty Investment Trust R
14,9202,179,812
Gaming and Leisure Properties, Inc. R
60,1701,672,726
MFA Financial, Inc. R
391,4712,583,709
16,147,195
Road and rail (0.7%)
Union Pacific Corp.
43,8303,427,506
3,427,506
Semiconductors and semiconductor equipment (2.7%)
Intel Corp.
153,9605,303,922
NXP Semiconductor NV †
46,4403,912,570
Texas Instruments, Inc.
62,8803,446,453
12,662,945
Software (3.0%)
Microsoft Corp.
230,31012,777,599
Symantec Corp.
65,3001,371,300
14,148,899
Specialty retail (0.9%)
Gap, Inc. (The) S
81,170उ2,004,899
Tiffany & Co. S
28,4502,170,451
4,175,350
6 Putnam VT Equity Income Fund
COMMON STOCKS (95.4%)* cont.
SharesValue
Technology hardware, storage, and peripherals (2.6%)
Apple, Inc.
56,230$5,918,770
EMC Corp.
156,1204,009,162
SanDisk Corp.
27,5562,093,980
12,021,912
Textiles, apparel, and luxury goods (0.3%)
Michael Kors Holdings, Ltd. †
37,4701,501,048
1,501,048
Thrifts and mortgage finance (0.6%)
Radian Group, Inc.
210,8522,823,308
2,823,308
Tobacco (1.3%)
Philip Morris International, Inc.
71,3506,272,379
6,272,379
Wireless telecommunication services (0.7%)
Vodafone Group PLC ADR (United Kingdom)
102,9773,322,038
3,322,038
Total common stocks (cost $372,751,533)$449,209,068
CONVERTIBLE PREFERRED STOCKS (1.3%)*
Shares
Value
Alcoa, Inc. Ser. 1, $2.688 cv. pfd. S
67,083$2,234,702
Allergan PLC Ser. A, 5.50% cv. pfd.
1,0901,122,896
American Tower Corp. $5.50 cv. pfd. R
10,2251,029,530
ArcelorMittal SA Ser. MTUS, $1.50 cv. pfd. (France) 14,17191,669
Frontier Communications Corp. Ser. A, $11.125
cum. cv. pfd.
5,089462,145
Oportun Financial Corp. Ser. A-1, 8.00% cv. pfd.
(acquired 6/23/15, cost $610) (Private) † ∆∆ F
214549
Oportun Financial Corp. Ser. B-1, 8.00% cv. pfd.
(acquired 6/23/15, cost $11,658) (Private) † ∆∆ F 3,70110,492
Oportun Financial Corp. Ser. C-1, 8.00% cv. pfd.
(acquired 6/23/15, cost $27,379) (Private) † ∆∆ F 5,37924,641
Oportun Financial Corp. Ser. D-1, 8.00% cv. pfd.
(acquired 6/23/15, cost $39,712) (Private) † ∆∆ F 7,80235,741
Oportun Financial Corp. Ser. E-1, 8.00% cv. pfd.
(acquired 6/23/15, cost $22,267) (Private) † ∆∆ F 4,05620,041
Oportun Financial Corp. Ser. F, 8.00% cv. pfd.
(acquired 6/23/15, cost $67,223) (Private) † ∆∆ F 8,75360,501
Oportun Financial Corp. Ser. F-1, 8.00% cv. pfd.
(acquired 6/23/15, cost $188,556) (Private) † ∆∆ F 66,160169,700
Oportun Financial Corp. Ser. G, 8.00% cv. pfd.
(acquired 6/23/15, cost $238,428) (Private) † ∆∆ F 83,659214,585
Oportun Financial Corp. Ser. H, 8.00% cv. pfd.
(acquired 2/6/15, cost $732,781) (Private) † ∆∆ F 257,360659,503
Total convertible preferred stocks (cost $7,658,439)$6,136,695
CONVERTIBLE BONDS AND NOTES (0.6%)*
Principal amount
Value
MGIC Investment Corp. cv. sr. unsec. notes 5s, 2017 $1,768,000$1,818,830
WESCO International, Inc. cv. company
guaranty sr. unsec. notes 6s, 2029
624,000968,760
Total convertible bonds and notes (cost $2,530,611)$2,787,590
SHORT-TERM INVESTMENTS (4.8%)
Shares
Value
Putnam Cash Collateral Pool, LLC 0.44% d
10,137,525$10,137,525
Putnam Short Term Investment Fund 0.33% L
12,519,42812,519,428
Total short-term investments (cost $22,656,953)$22,656,953
Total investments (cost $405,597,536)$480,790,306
Key to holding’s abbreviations
ADRAmerican Depository Receipts: represents ownership of foreign
securities on deposit with a custodian bank
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close
of the fund’s reporting period, which ran from January 1, 2015 through
December 31, 2015 (the reporting period). Within the following notes to
the portfolio, references to “ASC 820” represent Accounting Standards
Codification 820 Fair Value Measurements and Disclosures and references
to “OTC”, if any, represent over-the-counter.
F This
security is valued at fair value following procedures approved by the
Trustees. Securities may be classified as Level 2 or Level 3 for ASC 820 based
on the securities’ valuation inputs. At the close of the reporting period, fair
value pricing was also used for certain foreign securities in the portfolio
(Note 1).
L Affiliated company (Note 5). The rate quoted in the security description is
the annualized 7-day yield of the fund at the close of the reporting period.
* Percentages indicated are based on net assets of $470,659,442.
R Real Estate Investment Trust.
† This security is non-income-producing.
S Security
∆∆ This security is restricted with regard to public resale. The total fair value of
this security and any other restricted securities (excluding 144A securities),
if any, held at the close of the reporting period was $1,396,646, or 0.3% of
net assets.
on loan, in part or in entirety, at the close of the reporting period
(Note 1).
Debt obligations are considered secured unless otherwise indicated.
The dates shown on debt obligations are the original maturity dates.
d Affiliated company. See Note 1 to the financial statements regarding securi-
ties lending. The rate quoted in the security description is the annualized
7-day yield of the fund at the close of the reporting period.
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the
valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
Valuation inputs
Investments in securities:
Level 1
Level 2
Level 3
Common stocks*:
Consumer discretionary
Consumer staples
Energy
Financials
$—­
$—­
40,551,249
—
—
36,071,187
2,901,065
—
104,166,878
—
200,893
Health care
55,932,176
—
—
Industrials
51,571,130
—
—
Information technology
57,521,639
—
—
Materials
20,177,390
—
—
Telecommunication services
15,388,363
—
—
Utilities
22,320,064
—
—
446,107,110
2,901,065
200,893
—
2,787,590
—
1,195,753
Total common stocks
Convertible bonds and notes
Convertible preferred stocks
Short-term investments
Totals by level
$42,407,034
—
4,940,942
12,519,428
10,137,525
—
$458,626,538
$20,767,122
$1,396,646
*Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.
During the reporting period, transfers within the fair value hierarchy, if any, (other than certain transfers involving non-U.S. equity securities as described in
Note 1­) did not represent, in the aggregate, more than 1% of the fund’s net assets measured as of the end of the period. Transfers are accounted for using the
end of period pricing valuation method.
At the start and close of the reporting period, Level 3 investments in securities represented less than 1% of the fund’s net assets and were not considered a
significant portion of the fund’s portfolio.
The accompanying notes are an integral part of these financial statements.
Putnam VT Equity Income Fund 7
Statement of assets and liabilities
12/31/15
Assets
Investment in securities, at value, including $9,806,150 of securities on loan (Note 1):
Unaffiliated issuers (identified cost $382,940,583)
Affiliated issuers (identified cost $22,656,953) (Notes 1 and 5)
Dividends, interest and other receivables
Receivable for shares of the fund sold
Total assets
$458,133,353
22,656,953
1,032,717
213,971
482,036,994
Liabilities
Payable for shares of the fund repurchased
Payable for compensation of Manager (Note 2)
Payable for custodian fees (Note 2)
Payable for investor servicing fees (Note 2)
Payable for Trustee compensation and expenses (Note 2)
Payable for administrative services (Note 2)
Payable for distribution fees (Note 2)
Collateral on securities loaned, at value (Note 1)
676,658
190,587
6,321
53,161
172,610
3,624
62,218
10,137,525
Other accrued expenses
Total liabilities
74,848
11,377,552
Net assets
$470,659,442
Represented by
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)
Undistributed net investment income (Note 1)
Accumulated net realized gain on investments and foreign currency transactions (Note 1)
Net unrealized appreciation of investments and assets and liabilities in foreign currencies
Total — Representing net assets applicable to capital shares outstanding
$379,315,313
8,987,079
7,164,292
75,192,758
$470,659,442
Computation of net asset value Class IA
Net assets
Number of shares outstanding
Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding)
$180,031,697
8,283,419
$21.73
Computation of net asset value Class IB
Net assets
Number of shares outstanding
Net asset value, offering price and redemption price per share (net assets divided by number of shares outstanding)
The accompanying notes are an integral part of these financial statements.
8 Putnam VT Equity Income Fund
$290,627,745
13,483,155
$21.55
Statement of operations
Year ended 12/31/15
Investment income
Dividends (net of foreign tax of $83,319)
Interest (including interest income of $15,035 from investments in affiliated issuers) (Note 5)
Securities lending (Note 1)
Total investment income
$12,741,109
111,987
87,307
12,940,403
Expenses
Compensation of Manager (Note 2)
Investor servicing fees (Note 2)
Custodian fees (Note 2)
Trustee compensation and expenses (Note 2)
Distribution fees (Note 2)
Administrative services (Note 2)
Other
Total expenses
2,289,016
341,939
15,437
30,220
732,009
12,927
138,290
3,559,838
Expense reduction (Note 2)
Net expenses
(11,101)
3,548,737
Net investment income
9,391,666
Net realized gain on investments (Notes 1 and 3)
Net realized gain on foreign currency transactions (Note 1)
Net unrealized depreciation of assets and liabilities in foreign currencies during the year
Net unrealized depreciation of investments during the year
Net loss on investments
28,796,842
1,483
(12)
(52,171,764)
(23,373,451)
Net decrease in net assets resulting from operations
$(13,981,785)
Statement of changes in net assets Year ended
12/31/15
Year ended
12/31/14
Increase (decrease) in net assets
Operations:
Net investment income
$9,391,666
$7,943,068
Net realized gain on investments and foreign currency transactions
28,798,325
59,200,526
Net unrealized depreciation of investments and assets and liabilities in foreign currencies
(52,171,776)
(9,590,539)
Net increase (decrease) in net assets resulting from operations
(13,981,785)
57,553,055
Class IA
(3,676,383)
(3,959,537)
Class IB
(4,623,024)
(4,695,039)
1,446,310
(28,313,940)
(20,834,882)
20,584,539
Distributions to shareholders (Note 1):
From ordinary income
Net investment income
Increase (decrease) from capital share transactions (Note 4)
Total increase (decrease) in net assets
Net assets:
Beginning of year
End of year (including undistributed net investment income of $8,987,079 and $7,961,044, respectively)
491,494,324
470,909,785
$470,659,442
$491,494,324
The accompanying notes are an integral part of these financial statements.
Putnam VT Equity Income Fund 9
Financial highlights (For a common share outstanding throughout the period)
LESS
DISTRIBUTIONS:
Net realized and unrealized gain (loss)
on investments­
Total from investment operations­
From net investment income­
Total dis­tri­bu­tions­
Net asset value, end of period­
Net assets, end of period (in thousands­)
Ratio of expenses to average net assets (%­)b,d
Ratio of net investment income (loss)
to average net assets (%­)
Portfolio turnover (%­)
12/31/15­
$22.76­
.46
(1.07­)
(.61­)
(.42­)
(.42­)
$21.73­
(2.79­)
$180,032­
.58­
2.06
22­
12/31/14­
20.55­
.39­
2.23­
2.62­
(.41­)
(.41­)
22.76­
12.97­
202,797­
.61­
1.81­
31­
37­
Period ended­
Total return at net asset value (%­)b,c
Net investment income (loss­)a
RATIOS AND SUPPLEMENTAL DATA:
Net asset value, beginning of period­
INVESTMENT OPERATIONS:
Class IA­
12/31/13­
15.83­
.39­
4.72­
5.11­
(.39­)
(.39­)
20.55­
32.72­
204,742­
.63­
2.12­
12/31/12­
13.56­
.37­
2.27­
2.64­
(.37­)
(.37­)
15.83­
19.62­
181,642­
.64­
2.50­
51­
12/31/11­
13.54­
.34­
(.04­)
.30­
(.28­)
(.28­)
13.56­
2.07­
175,723­
.64­
2.48­
66­
22­
Class IB­
12/31/15­
$22.58­
.41­
(1.08­)
(.67­)
(.36­)
(.36­)
$21.55­
(3.04­)
$290,628­
.83­
1.83
12/31/14­
20.40­
.33­
2.21­
2.54­
(.36­)
(.36­)
22.58­
12.66­
288,698­
.86­
1.56­
31­
12/31/13­
15.72­
.34­
4.69­
5.03­
(.35­)
(.35­)
20.40­
32.41­
266,168­
.88­
1.87­
37­
12/31/12­
13.47­
.33­
2.25­
2.58­
(.33­)
(.33­)
15.72­
19.30­
205,628­
.89­
2.25­
51­
12/31/11­
13.44­
.30­
(.03­)
.27­
(.24­)
(.24­)
13.47­
1.92­
181,456­
.89­
2.23­
66­
a
Per share net investment income (loss) has been determined on the basis of the weighted average number of shares outstanding during the period.
b The charges and expenses at the insurance company separate account level are not reflected.
c
Total return assumes dividend reinvestment.
d Includes amounts paid through expense offset and/or brokerage/service arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.
The accompanying notes are an integral part of these financial statements.
10 Putnam VT Equity Income Fund
Notes to financial statements 12/31/15
Within the following Notes to financial statements, references to “State Street”
represent State Street Bank and Trust Company, references to “the SEC”
represent the Securities and Exchange Commission, references to “Putnam
Management” represent Putnam Investment Management, LLC, the fund’s
manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC
and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from January 1, 2015
through December 31, 2015.
Putnam VT Equity Income Fund (the fund) is a diversified series of Putnam
Variable Trust (the Trust), a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended, as an open-end management investment company. The goal of the fund is to seek capital growth and
current income. The fund invests mainly in common stocks of midsize and
large U.S. companies, with a focus on value stocks that offer the potential for
capital growth, current income, or both. Value stocks are issued by companies
that Putnam Management believes are currently undervalued by the market.
If Putnam Management is correct and other investors ultimately recognize the
value of the company, the price of its stock may rise. Putnam Management may
consider, among other factors, a company’s valuation, financial strength, growth
potential, competitive position in its industry, projected future earnings, cash
flows and dividends when deciding whether to buy or sell investments.
The fund offers class IA and class IB shares of beneficial interest. Class IA shares
are offered at net asset value and are not subject to a distribution fee. Class IB
shares are offered at net asset value and pay an ongoing distribution fee, which
is identified in Note 2.
In the normal course of business, the fund enters into contracts that may
include agreements to indemnify another party under given circumstances.
The fund’s maximum exposure under these arrangements is unknown as this
would involve future claims that may be, but have not yet been, made against
the fund. However, the fund’s management team expects the risk of material
loss to be remote.
Note 1 — Significant accounting policies
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and the reported amounts of increases
and decreases in net assets from operations. Actual results could differ from
those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been
evaluated in the preparation of the financial statements.
Investment income, realized and unrealized gains and losses and expenses of
the fund are borne pro-rata based on the relative net assets of each class to the
total net assets of the fund, except that each class bears expenses unique to
that class (including the distribution fees applicable to such classes). Each class
votes as a class only with respect to its own distribution plan or other matters
on which a class vote is required by law or determined by the Trustees. If the
fund were liquidated, shares of each class would receive their pro-rata share of
the net assets of the fund. In addition, the Trustees declare separate dividends
on each class of shares.
Security valuation Portfolio securities and other investments are valued using
policies and procedures adopted by the Board of Trustees. The Trustees have
formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management
has established an internal Valuation Committee that is responsible for making
fair value determinations, evaluating the effectiveness of the pricing policies of
the fund and reporting to the Pricing Committee.
Investments for which market quotations are readily available are valued at the
last reported sales price on their principal exchange, or official closing price
for certain markets, and are classified as Level 1 securities under Accounting
Standards Codification 820 Fair Value Measurements and Disclosures
(ASC 820). If no sales are reported, as in the case of some securities that are
traded OTC, a security is valued at its last reported bid price and is generally
categorized as a Level 2 security.
Investments in open-end investment companies (excluding exchange-traded
funds), if any, which can be classified as Level 1 or Level 2 securities, are valued
based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the
number of their outstanding shares.
Many securities markets and exchanges outside the U.S. close prior to the close
of the New York Stock Exchange and therefore the closing prices for securities in such markets or on such exchanges may not fully reflect events that
occur after such close but before the close of the New York Stock Exchange.
Accordingly, on certain days, the fund will fair value foreign equity securities
taking into account multiple factors including movements in the U.S. securities
markets, currency valuations and comparisons to the valuation of American
Depository Receipts, exchange-traded funds and futures contracts. These
securities, which would generally be classified as Level 1 securities, will be
transferred to Level 2 of the fair value hierarchy when they are valued at fair
value. The number of days on which fair value prices will be used will depend on
market activity and it is possible that fair value prices will be used by the fund
to a significant extent. At the close of the reporting period, fair value pricing
was used for certain foreign securities in the portfolio. Securities quoted in
foreign currencies, if any, are translated into U.S. dollars at the current exchange
rate. Short-term securities with remaining maturities of 60 days or less may be
valued at amortized cost, which approximates fair value, and are classified as
Level 2 securities.
To the extent a pricing service or dealer is unable to value a security or provides
a valuation that Putnam Management does not believe accurately reflects
the security’s fair value, the security will be valued at fair value by Putnam
Management in accordance with policies and procedures approved by the
Trustees. Certain investments, including certain restricted and illiquid securities
and derivatives, are also valued at fair value following procedures approved by
the Trustees. These valuations consider such factors as significant market or
specific security events such as interest rate or credit quality changes, various
relationships with other securities, discount rates, U.S. Treasury, U.S. swap and
credit yields, index levels, convexity exposures, recovery rates, sales and other
multiples and resale restrictions. These securities are classified as Level 2 or as
Level 3 depending on the priority of the significant inputs.
To assess the continuing appropriateness of fair valuations, the Valuation
Committee reviews and affirms the reasonableness of such valuations on a
regular basis after considering all relevant information that is reasonably available. Such valuations and procedures are reviewed periodically by the Trustees.
The fair value of securities is generally determined as the amount that the fund
could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good
faith estimate of the value of a security in a current sale and does not reflect an
actual market price, which may be different by a material amount.
Security transactions and related investment income Security transactions
are recorded on the trade date (the date the order to buy or sell is executed).
Gains or losses on securities sold are determined on the identified cost basis.
Interest income, net of any applicable withholding taxes, is recorded on the
accrual basis. Dividend income, net of any applicable withholding taxes,
is recognized on the ex-dividend date except that certain dividends from
foreign securities, if any, are recognized as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair value of
the securities received. Dividends representing a return of capital or capital
gains, if any, are reflected as a reduction of cost and/or as a realized gain.
All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The fair value of foreign securities, currency holdings, and
other assets and liabilities is recorded in the books and records of the fund after
translation to U.S. dollars based on the exchange rates on that day. The cost
of each security is determined using historical exchange rates. Income and
withholding taxes are translated at prevailing exchange rates when earned or
incurred. The fund does not isolate that portion of realized or unrealized gains
or losses resulting from changes in the foreign exchange rate on investments
from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign currency
transactions represent net realized exchange gains or losses on closed forward
Putnam VT Equity Income Fund 11
currency contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund’s books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the
value of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
Securities lending The fund may lend securities, through its agent, to qualified borrowers in order to earn additional income. The loans are collateralized by cash in an amount at least equal to the fair value of the securities
loaned. The fair value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The
remaining maturities of the securities lending transactions are considered
overnight and continuous. The risk of borrower default will be borne by the
fund’s agent; the fund will bear the risk of loss with respect to the investment
of the cash collateral. Income from securities lending is included in investment
income on the Statement of operations. Cash collateral is invested in Putnam
Cash Collateral Pool, LLC, a limited liability company managed by an affiliate
of Putnam Management. Investments in Putnam Cash Collateral Pool, LLC are
valued at its closing net asset value each business day. There are no management fees charged to Putnam Cash Collateral Pool, LLC. At the close of the
reporting period, the fund received cash collateral of $10,137,525 and the value
of securities loaned amounted to $9,806,150.
Interfund lending The fund, along with other Putnam funds, may participate
in an interfund lending program pursuant to an exemptive order issued by the
SEC. This program allows the fund to borrow from or lend to other Putnam
funds that permit such transactions. Interfund lending transactions are subject
to each fund’s investment policies and borrowing and lending limits. Interest
earned or paid on the interfund lending transaction will be based on the
average of certain current market rates. During the reporting period, the fund
did not utilize the program.
Lines of credit The fund participates, along with other Putnam funds, in a
$392.5 million syndicated unsecured committed line of credit provided by
State Street ($292.5 million) and Northern Trust Company ($100 million) and a
$235.5 million unsecured uncommitted line of credit provided by State Street.
Borrowings may be made for temporary or emergency purposes, including the
funding of shareholder redemption requests and trade settlements. Interest
is charged to the fund based on the fund’s borrowing at a rate equal to the
higher of (1) the Federal Funds rate and (2) the overnight LIBOR plus 1.25%
for the committed line of credit and the Federal Funds rate plus 1.30% for the
uncommitted line of credit. A closing fee equal to 0.04% of the committed line
of credit and 0.04% of the uncommitted line of credit has been paid by the
participating funds. In addition, a commitment fee of 0.16% per annum on any
unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the
reporting period, the fund had no borrowings against these arrangements.
Federal taxes It is the policy of the fund to distribute all of its taxable income
within the prescribed time period and otherwise comply with the provisions
of the Internal Revenue Code of 1986, as amended (the Code), applicable to
regulated investment companies.
The fund is subject to the provisions of Accounting Standards Codification 740
Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has
been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of
the fund’s federal tax returns for the prior three fiscal years remains subject to
examination by the Internal Revenue Service.
The fund may also be subject to taxes imposed by governments of countries
in which it invests. Such taxes are generally based on either income or gains
earned or repatriated. The fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or
capital gains are earned. In some cases, the fund may be entitled to reclaim
all or a portion of such taxes, and such reclaim amounts, if any, are reflected
as an asset on the fund’s books. In many cases, however, the fund may not
receive such amounts for an extended period of time, depending on the
country of investment.
12 Putnam VT Equity Income Fund
Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains to
be distributed are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences from losses on wash
sale transactions and nontaxable dividends. Reclassifications are made to the
fund’s capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. At the close of
the reporting period, the fund reclassified $66,224 to decrease undistributed
net investment income, $13 to decrease paid-in capital and $66,237 to increase
accumulated net realized gain.
The tax basis components of distributable earnings and the federal tax cost as
of the close of the reporting period were as follows:
Unrealized appreciation$109,476,543
Unrealized depreciation(35,251,914)
Net unrealized appreciation74,224,629
Undistributed ordinary income8,987,079
Undistributed long-term gain8,132,434
Cost for federal income tax purposes$406,565,677
Expenses of the Trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the Trust will
be allocated among and charged to the assets of each fund on a basis that the
Trustees deem fair and equitable, which may be based on the relative assets of
each fund or the nature of the services performed and relative applicability to
each fund.
Beneficial interest At the close of the reporting period, insurance companies or
their separate accounts were record owners of all but a de minimis number of
the shares of the fund. Approximately 25.9% of the fund is owned by accounts
of one insurance company.
Note 2 — Management fee, administrative services and
other transactions
The fund pays Putnam Management a management fee (based on the fund’s
average net assets and computed and paid monthly) at annual rates that may
vary based on the average of the aggregate net assets of most open-end
funds, as defined in the fund’s management contract, sponsored by Putnam
Management. Such annual rates may vary as follows:
0.630% of the first $5 billion,
0.580% of the next $5 billion,
0.530% of the next $10 billion,
0.480% of the next $10 billion,
0.430% of the next $50 billion,
0.410% of the next $50 billion,
0.400% of the next $100 billion and
0.395% of any excess thereafter.
Putnam Management has contractually agreed, through April 30, 2017, to
waive fees or reimburse the fund’s expenses to the extent necessary to limit
the cumulative expenses of the fund, exclusive of brokerage, interest, taxes,
investment-related expenses, extraordinary expenses, acquired fund fees and
expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date
basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal
year-to-date period. During the reporting period, the fund’s expenses were not
reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management,
is authorized by the Trustees to manage a separate portion of the assets of
the fund as determined by Putnam Management from time to time. Putnam
Management pays a quarterly sub-management fee to PIL for its services at
an annual rate of 0.35% of the average net assets of the portion of the fund
managed by PIL.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount of
all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund’s assets are provided by State Street. Custody
fees are based on the fund’s asset level, the number of its security holdings and
transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides
investor servicing agent functions to the fund. Putnam Investor Services,
Inc. was paid a monthly fee for investor servicing at an annual rate of 0.07%
(0.10% prior to January 1, 2015) of the fund’s average daily net assets. During
the reporting period, the expenses for each class of shares related to investor
servicing fees were as follows:
expenses in the Statement of operations. Accrued pension liability is included
in Payable for Trustee compensation and expenses in the Statement of assets
and liabilities. The Trustees have terminated the Pension Plan with respect to
any Trustee first elected after 2003.
The fund has adopted a distribution plan (the Plan) with respect to its class IB
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
purpose of the Plan is to compensate Putnam Retail Management Limited
Partnership, an indirect wholly-owned subsidiary of Putnam Investments, LLC,
for services provided and expenses incurred in distributing shares of the fund.
The Plan provides for payment by the fund to Putnam Retail Management
Limited Partnership at an annual rate of up to 0.35% of the average net assets
attributable to the fund’s class IB shares. The Trustees have approved payment
by the fund at an annual rate of 0.25% of the average net assets attributable
to the fund’s class IB shares. During the reporting period, the class specific
expenses related to distribution fees were as follows:
Class IA$137,001
Class IB204,938
Total$341,939
The fund has entered into expense offset arrangements with Putnam Investor
Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and
State Street’s fees are reduced by credits allowed on cash balances. The fund
also reduced expenses through brokerage/service arrangements. For the
reporting period, the fund’s expenses were not reduced under the expense
offset arrangements and were reduced by $11,101 under the brokerage/
service arrangements.
Class IB$732,009
Each Independent Trustee of the fund receives an annual Trustee fee, of which
$292, as a quarterly retainer, has been allocated to the fund, and an additional
fee for each Trustees meeting attended. Trustees also are reimbursed for
expenses they incur relating to their services as Trustees.
Note 3 — Purchases and sales of securities
During the reporting period, the cost of purchases and the proceeds from sales,
excluding short-term investments, were as follows:
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which
allows the Trustees to defer the receipt of all or a portion of Trustees fees
payable on or after July 1, 1995. The deferred fees remain invested in certain
Putnam funds until distribution in accordance with the Deferral Plan.
Investments in securities (Long-term)
Cost of purchases
Proceeds from sales
$110,771,837
$105,216,429
U.S. government securities (Long-term)
Total
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the Pension Plan) covering all Trustees of the fund who have served as
a Trustee for at least five years and were first elected prior to 2004. Benefits
under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The
retirement benefit is payable during a Trustee’s lifetime, beginning the year
following retirement, for the number of years of service through December 31,
2006. Pension expense for the fund is included in Trustee compensation and
—
—
$110,771,837
$105,216,429
The fund may purchase or sell investments from or to other Putnam funds
in the ordinary course of business, which can reduce the fund’s transaction
costs, at prices determined in accordance with SEC requirements and policies
approved by the Trustees. During the reporting period, purchases or sales from
or to other Putnam funds, if any, did not represent more than 5% of the fund’s
total cost of purchases and/or total proceeds from sales.
Note 4— Capital shares
At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Subscriptions and redemptions are presented at
the omnibus level. Transactions in capital shares were as follows:
Class IA shares
Year ended 12/31/15
Class IB shares
Year ended 12/31/14
Year ended 12/31/15
Year ended 12/31/14
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Shares sold
537,636
$12,062,886
545,730
$11,751,528
2,377,351
$52,943,696
2,204,556
$46,842,986
Shares issued in connection with reinvestment of
distributions
150,748
3,441,583
190,932
3,921,747
203,837
4,623,024
230,036
4,695,039
688,384
15,504,469
736,662
15,673,275
2,581,188
57,566,720
2,434,592
51,538,025
(38,304,081)
(1,883,705)
(42,065,422)
(2,698,514)
(57,221,159)
(263,922)
$(5,683,134)
Shares repurchased
(1,314,787)
Net increase (decrease)
(29,559,457)
(626,403) $(14,054,988)
(1,789,023)
(1,052,361) $(22,630,806)
697,483
$15,501,298
Note 5 — Affiliated transactions
Transactions during the reporting period with Putnam Short Term Investment Fund, which is under common ownership and control, were as follows:
Name of affiliate
Fair value at the beginning of
the reporting period
Purchase cost
Sale proceeds
Investment income
Fair value at the end of the
reporting period
Putnam Short Term Investment Fund*
$12,734,327
$80,660,896
$80,875,795
$15,035
$12,519,428
Totals
$12,734,327
$80,660,896
$80,875,795
$15,035
$12,519,428
* Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management.
Note 6 — Market, credit and other risks
In the normal course of business, the fund trades financial instruments and
enters into financial transactions where risk of potential loss exists due to
changes in the market (market risk) or failure of the contracting party to the
transaction to perform (credit risk). The fund may be exposed to additional
credit risk that an institution or other entity with which the fund has unsettled or open transactions will default. Investments in foreign securities involve
certain risks, including those related to economic instability, unfavorable
political developments, and currency fluctuations.
Putnam VT Equity Income Fund 13
Federal tax information (Unaudited)
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby
designates $8,945,677 as a capital gain dividend with respect to the taxable
year ended December 31, 2015, or, if subsequently determined to be different,
the net capital gain of such year.
The fund designated 97.51% of ordinary income distributions as qualifying for
the dividends received deduction for corporations.
14 Putnam VT Equity Income Fund
About the Trustees
Name
Year of birth
Position held
Principal occupations during past five years
Other directorships
Independent Trustees
Liaquat Ahamed
Born 1952
Trustee since 2012
Pulitzer Prize-winning author of Lords of Finance: The Bankers Who
Broke the World, whose articles on economics have appeared in
such publications as the New York Times, Foreign Affairs, and the
Financial Times. Director of Aspen Insurance Co., a New York Stock
Exchange company, and Chair of the Aspen Board’s Investment
Committee. Trustee of the Brookings Institution.
The Rohatyn Group, an
emerging-market fund
complex that manages
money for institutions
Ravi Akhoury
Born 1947
Trustee since 2009
Trustee of American India Foundation and of the Rubin Museum.
From 1992 to 2007, was Chairman and CEO of MacKay Shields, a
multi-product investment management firm.
RAGE Frameworks, Inc.,
a private software company;
English Helper, Inc., a private
software company
Barbara M. Baumann
Born 1955
Trustee since 2010
President and Owner of Cross Creek Energy Corporation, a strategic
consultant to domestic energy firms and direct investor in energy
projects. Current Board member of The Denver Foundation. Former
Chair and current Board member of Girls Incorporated of Metro
Denver. Member of the Finance Committee, the Children’s Hospital
of Colorado.
Buckeye Partners, L.P.,
a publicly traded master
limited partnership focused
on pipeline transport,
storage, and distribution of
petroleum products; Devon
Energy Corporation, a
leading independent natural
gas and oil exploration and
production company
Jameson A. Baxter
Born 1943
Trustee since 1994, Vice
Chair from 2005 to 2011,
and Chair since 2011
President of Baxter Associates, Inc., a private investment firm. Chair of
Mutual Fund Directors Forum. Chair Emeritus of the Board of Trustees
of Mount Holyoke College. Director of the Adirondack Land Trust and
Trustee of the Nature Conservancy’s Adirondack Chapter.
None
Robert J. Darretta
Born 1946
Trustee since 2007
From 2009 until 2012, served as Health Care Industry Advisor to
Permira, a global private equity firm. Until April 2007, was Vice
Chairman of the Board of Directors of Johnson & Johnson. Served as
Johnson & Johnson’s Chief Financial Officer for a decade.
UnitedHealth Group, a
diversified health-care
company
Katinka Domotorffy
Born 1975
Trustee since 2012
Voting member of the Investment Committees of the Anne Ray
Charitable Trust and Margaret A. Cargill Foundation, part of the
Margaret A. Cargill Philanthropies. Until 2011, Partner, Chief Investment
Officer, and Global Head of Quantitative Investment Strategies at
Goldman Sachs Asset Management.
Reach Out and Read of
Greater New York, an
organization dedicated to
promoting childhood literacy;
Great Lakes Science Center
John A. Hill
Born 1942
Trustee since 1985 and
Chairman from 2000
to 2011
Founder and Vice-Chairman of First Reserve Corporation, the leading
private equity buyout firm focused on the worldwide energy industry.
Trustee and Chairman of the Board of Trustees of Sarah Lawrence
College. Member of the Advisory Board of the Millstein Center for
Global Markets and Corporate Ownership at The Columbia University
Law School.
Devon Energy Corporation,
a leading independent natural
gas and oil exploration and
production company
Paul L. Joskow
Born 1947
Trustee since 1997
Economist and President of the Alfred P. Sloan Foundation, a
philanthropic institution focused primarily on research and education
on issues related to science, technology, and economic performance.
Elizabeth and James Killian Professor of Economics, Emeritus at the
Massachusetts Institute of Technology (MIT). Prior to 2007, served
as the Director of the Center for Energy and Environmental Policy
Research at MIT.
Yale University; Exelon
Corporation, an energy
company focused on power
services; Boston Symphony
Orchestra; Prior to April
2013, served as Director of
TransCanada Corporation
and TransCanada Pipelines
Ltd., energy companies
focused on natural gas
transmission, oil pipelines
and power services
Kenneth R. Leibler
Born 1949
Trustee since 2006
Founder and former Chairman of Boston Options Exchange, an
electronic marketplace for the trading of derivative securities.
Serves on the Board of Trustees of Beth Israel Deaconess Hospital
in Boston, Massachusetts. Director of Beth Israel Deaconess Care
Organization. Until November 2010, director of Ruder Finn Group, a
global communications and advertising firm.
Eversource Corporation,
which operates New England’s
largest energy delivery system
Putnam VT Equity Income Fund 15
Name
Year of birth
Position held
Principal occupations during past five years
Other directorships
Robert E. Patterson
Born 1945
Trustee since 1984
Co-Chairman of Cabot Properties, Inc., a private equity firm investing
in commercial real estate; and Chairman of its Investment Committee.
Past Chairman and Trustee of the Joslin Diabetes Center.
None
George Putnam, III
Born 1951
Trustee since 1984
Chairman of New Generation Research, Inc., a publisher of financial
advisory and other research services. Founder and President of
New Generation Advisors, LLC, a registered investment advisor to
private funds. Director of The Boston Family Office, LLC, a registered
investment advisor.
None
W. Thomas Stephens
Born 1942
Trustee from 1997 to 2008
and since 2009
Retired as Chairman and Chief Executive Officer of Boise Cascade, LLC,
a paper, forest products, and timberland assets company, in December
2008. Prior to 2010, Director of Boise Inc., a manufacturer of paper and
packaging products.
Prior to April 2014, served
as Director of TransCanada
Pipelines Ltd., an energy
infrastructure company
President and Chief Executive Officer of Putnam Investments since
2008 and, since 2014, President and Chief Executive Officer of
Great‑West Financial, a financial services company that provides
retirement savings plans, life insurance, and annuity and executive
benefits products, and of Great‑West Lifeco U.S. Inc., a holding
company that owns Putnam Investments and Great-West Financial.
Prior to joining Putnam Investments, served as Vice Chairman and
Chief Operating Officer of Fidelity Investments from 2000 to 2007.
None
Interested Trustee
Robert L. Reynolds*
Born 1952
Trustee since 2008 and
President of the Putnam
Funds since 2009
*Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund and Putnam Investments. He is President and Chief
Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of December 31, 2015, there were 117 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 75, removal, or death.
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
Jonathan S. Horwitz (Born 1955)
Executive Vice President, Principal Executive
Officer, and Compliance Liaison
Since 2004
Steven D. Krichmar (Born 1958)
Vice President and Principal Financial Officer
Since 2002
Chief of Operations, Putnam Investments and
Putnam Management
Robert T. Burns (Born 1961)
Vice President and Chief Legal Officer
Since 2011
General Counsel, Putnam Investments,
Putnam Management, and Putnam
Retail Management
James F. Clark (Born 1974)
Chief Compliance Officer
Since 2016
Associate General Counsel, Putnam
Investments, Putnam Investment
Management, and Putnam Retail
Management (2003–2015)
Michael J. Higgins (Born 1976)
Vice President, Treasurer, and Clerk
Since 2010
Manager of Finance, Dunkin’ Brands
(2008–2010); Senior Financial Analyst, Old
Mutual Asset Management (2007–2008);
Senior Financial Analyst, Putnam Investments
(1999–2007)
Janet C. Smith (Born 1965)
Vice President, Principal Accounting Officer,
and Assistant Treasurer
Since 2007
Director of Fund Administration Services,
Putnam Investments and
Putnam Management
Susan G. Malloy (Born 1957)
Vice President and Assistant Treasurer
Since 2007
Director of Accounting & Control
Services, Putnam Investments and
Putnam Management
James P. Pappas (Born 1953)
Vice President
Since 2004
Director of Trustee Relations,
Putnam Investments and
Putnam Management
Mark C. Trenchard (Born 1962)
Vice President and BSA Compliance Officer
Since 2002
Director of Operational Compliance,
Putnam Investments and Putnam
Retail Management
Nancy E. Florek (Born 1957)
Vice President, Director of Proxy Voting and
Corporate Governance, Assistant Clerk, and
Associate Treasurer
Since 2000
The principal occupations of the officers for the past five years have been with the employers as shown above, although in some cases they have held different
positions with such employers. The address of each officer is One Post Office Square, Boston, MA 02109.
16 Putnam VT Equity Income Fund
Other important information
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies relating to portfolio ­securities during the 12-month period ended
June 30, 2015, are available in the Individual Investors section of putnam.com and on the Securities and Exchange Commission’s [SEC] website,
www.sec.gov. If you have q
­ uestions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds’ proxy voting g
­ uidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
Each Putnam VT fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form
N-Q. Shareholders may obtain the fund’s Form N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Form N-Q may be reviewed and
copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website
or the operation of the Public Reference Room.
Fund information
Investment Manager
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
Investment Sub-Manager
Putnam Investments Limited
57–59 St James’s Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Investor Servicing Agent
Putnam Investor Services, Inc.
Mailing address:
P.O. Box 8383
Boston, MA 02266-8383
1-800-225-1581
Custodian
State Street Bank and Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
Trustees
Jameson A. Baxter, Chair
Liaquat Ahamed
Ravi Akhoury
Barbara M. Baumann
Robert J. Darretta
Katinka Domotorffy
John A. Hill
Paul L. Joskow
Kenneth R. Leibler
Robert E. Patterson
George Putnam, III
Robert L. Reynolds
W. Thomas Stephens
The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon
request by calling 1-800-225-1581.
Putnam VT Equity Income Fund 17
This report has been prepared for the shareholders
of Putnam VT Equity Income Fund.
H503
VTAN020 298642 2/16